We work with many buyers who requires Financing when they are buying Manhattan New York condos, often we try to offer them tips to ensure their application/loan approval process is smooth and stress free. One of our mortgage expert Peter Gostin has offered our buyers some tips in terms of Documentation of Assets:
As everyone who hasn't been living under a rock the last four years can attest to, the mortgage process has become much more difficult than it was even before the bubble was created in 2002. Credit requirements are stricter, debt to income ratios are tighter, stated income loans are all but eliminated, and the scrutiny of appraisals is at an all time high. However, for all the issues that make the mortgage process more difficult, there is one issue that stands out above all the rest: The documentation of assets for down payment, closing costs, and reserves (if needed).
Let me give you a scenario of what can go wrong with this issue: A loan gets approved with an 800 credit score, 20% down, and a 40% debt to income ratio. The appraisal comes in at value and is approved. Everyone involved, including the loan officer, realtor, attorney, and borrowers all believe the transaction is on the way to a smooth closing. However, there is one small problem: The statement that shows the 20% down and closing costs has a transfer from another account. The underwriter requires you to get two months bank statements from the new account. However, there is an unexpected issue: There is a mysterious deposit of $40000 in the account. It turns out that it's a cash deposit gift from a relative that is very old school and has a natural distrust of banks. Unfortunately, there is no way to show where this came from. As a result, the underwriter takes 5% of the total, or $2000, and adds that amount to your income ratios. As a result, your 40% goes to 52% and your loan no longer qualifies. The resulting fallout is a denial letter, threats of a lawsuit from the seller, and just an overall mess that nobody in the transaction signed up for.
While the example above is a little on the extreme side, it definitely can and has happened in multiple transactions over the last few years. The good news is, there are steps that can be taken to prevent this type of disaster:
1. When you are in the stage of deciding to look for a house to buy, get your finances straight at that time. Move any and all money that is required for downpayment, closing costs, and reserves into one account. Remember, the most any bank will ask for is two months of a statement. So, if you leave yourself a three month window, you will eliminate any pesky questions that may come up during the loan process.
2. Make sure you do not make any deposits into that account, other than normal payroll direct deposit if that account is used for that. Any deposits will be flagged for additional documentation, and if you are unable to document properly for any reason, the underwriter will take 5% of that total and add it in to your debt ratio (and subtract it from your total available assets). In any situation where numbers are tight, this could make the difference between approval or denial of your loan.
3. Finally, during the loan process, don't make any deposits during that time either. You may think you've already provided what is necessary, but don't assume that you won't have to document that account again. For example, if you write the deposit check from that account, and it is cashed late in the process, the underwriter will be able to see all transactions made up to the point that check was cashed. Never assume you've provided everything that is necessary. The only time you can safely assume that is after you've closed and the realtor hands you the keys to your new home!
Hopefully these tips have been useful. If you need any further assistance with your mortgage needs, please do not hesitate to contact Peter Gostin from PNC Mortgage at (973) 698-5113.
Senior Loan Officer
(201) 447-7818 Work
(973) 698-5113 Cell
Eileen Hsu 許雅嵐 (email: EHSU(@)elliman.com)
Our team specialize in Manhattan New York Condominiums, townhouses, and condops.